The desert town of Borrego Springs, which relies on tourism dollars to support its struggling economy, has lost a second large hotel.

The Palm Desert Canyon Resort, a fixture in Borrego since 1987 that sits essentially at the entrance to both Anza-Borrego State Park and Borrego Springs at Montezuma Valley Road and Palm Canyon Road, shut down three weeks ago facing debt that appeared insurmountable.

Its closure, combined with the demise of the former La Casa del Zorro property two years ago, means there are now only about 180 hotel rooms available in Borrego Springs, down from more than 300.

Borrego Springs resort shuttered

“It’s horrible,” said Linda Haddock, the director of the unincorporated town’s Chamber of Commerce.

“Here’s the situation. When you look at the realities of trying to get groups, we need at least 300 rooms.”

Large groups of stargazers, hikers, off-roaders and even family reunions are the bread and butter of the local tourism industry. A stargazing group that always fills the Palm Canyon inn and other hotels has already canceled its annual outing this year because of the closure.

“We lost La Casa in the first part of 2010. That had 63 rooms. That was our only high-end establishment. It killed our income base from jobs and (transit occupancy tax) dollars.”

Palm Canyon had 61 rooms and 102 recreational vehicle spaces. Its appeal was more to a middle-class clientele.

“That Middle America traveler, that working-class group of people would come together there,” Haddock said.

The western-themed resort sits on 14 acres on the far west side of the town near the state park’s visitor center. Officials estimate 400,000 people drive by every year.

Resort General Manager Shirley Grear declined to comment, referring questions to the lender. A call to the lender was not returned. But Grear told the Borrego Sun newspaper that a combination of factors led to the decision to close, including seven windy weekends last winter that robbed the hotel of business and caused property damage that has not yet been repaired. She also said successive water rate increases of 30 percent and 20 percent, and the continuing economic malaise contributed to the shuttering.

At the time of its closure on Aug. 31, the hotel was operating with a skeleton staff of fewer than a dozen employees.

The only large hotel left in town is the Borrego Springs Resort, with about 100 rooms. A handful of other, much smaller hotels, make up the remainder of beds available.

When the decision to close was made in August, the resort was three months behind on gas and electric bills and four months behind on mortgage payments, Haddock said. It’s possible, however, that the resort could reopen in a few months in time for the winter season.

Haddock said the primary lender has determined the best way to protect the asset is to reopen it after renovations are completed. There’s a lot of legal work to be done, and the goal would eventually be to sell the property to a new owner.

And the future of the former La Casa del Zorro property is also looking up.

In 2008 the Copley Press, which had owned the resort for decades, sold the property to a developer for just $2.5 million. It was in the middle of David Copley’s great sell-off at a time when his company unloaded about a dozen newspapers culminating with the sale of The San Diego Union-Tribune in 2009.

The new owner invested about $7 million into renovations, making what was already a plush resort even nicer. But just 14 months later, La Casa del Zorro closed, putting about 70 people out of work.

Earlier this summer maxim Hotel Brokerage of Newport Beach was retained as the exclusive agent and listed the property for sale for $3.3 million.

Maxim’s Harry Pflueger said he has entertained numerous offers since.

“You can say that we generated multiple offers and while we are close to a deal, the property is still available.” Whether it will be bought and reopened as a hotel, or rather be purchased as a private retreat, is unknown.